Obama would veto Republican budget bill

Debt-ceiling debate moves to Capitol Hill this week

WASHINGTON (MarketWatch) — President Barack Obama would veto a House Republican bill that requires Congress to add a balanced-budget amendment to the Constitution before raising the country’s debt limit, the White House said Monday, as action in the debt-ceiling debate moved to Capitol Hill.

The House GOP’s “Cut, Cap and Balance Act” “would undercut the government’s “ability to meet its core commitments to seniors, middle-class families and the most vulnerable, while reducing our ability to invest in our future,” the White House said in a policy statement about the bill, which would also cut spending from the 2012 budget and cap future spending.

House Republicans are planning a Tuesday vote on the bill, which would raise the debt ceiling by $2.4 trillion and require matching spending cuts. The bill, one of several plans for raising the debt limit and cutting spending, is expected to fail in the Senate. Read a summary of the Cut, Cap and Balance Act.

The U.S. government is facing an Aug. 2 deadline for raising the debt ceiling, according to the Treasury Department, and Obama met over the weekend with House Speaker John Boehner and House Majority Leader Eric Cantor to discuss the debt limit.

“We’re making progress,” Obama said Monday in response to a reporter’s question about the negotiations.

Still, the White House left no question about the president’s stance on the House Republicans’ bill. “If the president were presented this bill for signature, he would veto it,” the White House said in a statement.

In response to the veto threat, Boehner said: “It’s disappointing the White House would reject this common-sense plan to rein in the debt and deficits that are hurting job creation in America.”

Meanwhile, Senate Democratic Leader Harry Reid and Senate Republican Leader Mitch McConnell are aiming to introduce a plan this week to allow Obama to raise the $14.3 trillion debt ceiling in exchange for cutting about $1.5 trillion in spending over 10 years. It would also set up a new congressional panel to explore ways to reduce the debt.

The Reid-McConnell plan has support in the Senate — but would, in turn, face a tougher sell in the Republican-controlled House.

Pressure is on the House, the Senate and the White House to put a plan together as the deadline for raising the debt limit draws near. Some members of Congress and analysts have said the United States could pick and choose payments it makes after that date, but Treasury Secretary Timothy Geithner insisted Monday that Aug. 2 is a hard deadline.

“We’ve looked at this carefully,” Geithner said on the business channel CNBC. “We have no other options to give Congress more time.”

Geithner has warned that the Treasury won’t be able to pay interest or principal on U.S. debt, or make Social Security, Medicare or other payments after Aug. 2 if Congress doesn’t raise the debt ceiling.

The plan from Reid, a Nevada Democrat, and McConnell, a Kentucky Republican, would allow Obama to raise the debt limit three times over the next year for a total of $2.5 trillion.

Also Monday, Fitch Ratings reiterated a threat to put the U.S. sovereign rating on a negative rating watch if the federal government doesn’t increase the debt ceiling before Aug. 2. But Fitch still predicts it will do so and will make “full and timely” payments on all obligations.

Major ratings agencies Moody’s Investors Service and Standard & Poor’s have threatened to downgrade U.S. debt in the absence of a deal, but so far the bond market has been little affected by the drama in Washington.

In Monday trading, the price on benchmark 10-year Treasury notes
TMUBMUSD10Y, -1.16%
nudged lower as their yield remained below the 3% level. Bond prices move inversely to their yields.

U.S. stocks, meanwhile, closed sharply lower to begin the trading week. Stocks registered broad losses as investors transferred holdings into safe-havens such as the dollar and gold
GC1Q
on concerns over U.S. debt levels and European-bank stability.

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